TodayisWednesday,December14,2016

RepublicofthePhilippines
SUPREMECOURT
Manila

FIRSTDIVISION

G.R.No.141658March18,2005

COMMISSIONEROFINTERNALREVENUE,Petitioner,
vs.
THEPHILIPPINEAMERICANACCIDENTINSURANCECOMPANY,INC.,THEPHILIPPINEAMERICAN
ASSURANCECOMPANY,INC.,andTHEPHILIPPINEAMERICANGENERALINSURANCECO.,INC.,
Respondents.

DECISION

CARPIO,J.:

TheCase

BeforetheCourtisapetitionforreview1assailingtheDecision2of7January2000oftheCourtofAppealsinCA
G.R.SPNo.36816.TheCourtofAppealsaffirmedtheDecision3of5January1995oftheCourtofTaxAppeals
("CTA") in CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered the Commissioner of Internal Revenue
("petitioner")torefundatotalofP29,575.02torespondentcompanies("respondents").

AntecedentFacts

Respondents are domestic corporations licensed to transact insurance business in the country. From August
1971toSeptember1972,respondentspaidtheBureauofInternalRevenueunderprotestthe3%taximposedon
lendinginvestorsbySection195A4ofCommonwealthActNo.466("CA466"),asamendedbyRepublicActNo.
6110 ("RA 6110") and other laws. CA 466 was the National Internal Revenue Code ("NIRC") applicable at the
time.

Respondents paid the following amounts: P7,985.25 from Philippine American ("PHILAM") Accident Insurance
Company P7,047.80 from PHILAM Assurance Company and P14,541.97 from PHILAM General Insurance
Company. These amounts represented 3% of each companys interest income from mortgage and other loans.
RespondentsalsopaidthetaxesrequiredofinsurancecompaniesunderCA466.

On 31 January 1973, respondents sent a letterclaim to petitioner seeking a refund of the taxes paid under
protest. When respondents did not receive a response, each respondent filed on 26 April 1973 a petition for
review with the CTA. These three petitions, which were later consolidated, argued that respondents were not
lendinginvestorsandassuchwerenotsubjecttothe3%lendinginvestorstaxunderSection195A.

TheCTAarchivedrespondentscaseforseveralyearswhileanothercasewithasimilarissuewaspendingbefore
thehighercourts.Whenrespondentscasewasreinstated,theCTAruledthatrespondentswereentitledtotheir
refund.

TheRulingoftheCourtofTaxAppeals

The CTA held that respondents are not taxable as lending investors because the term "lending investors" does
notembraceinsurancecompanies.TheCTAtracedthehistoryofthetaxonlendinginvestors,asfollows:

Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec.
1464(x), Rev. Adm. Code] The term money lenders was defined as including "all persons who make a
practice of lending money for themselves or others at interest." [Sec. 1465(v), id.] Under this law, an
insurancecompanywasnotconsideredamoneylenderandwasnottaxableassuch.Toquotefromanold
BIRRuling:
 "Thelendingofmoneyatinterestbyinsurancecompaniesconstitutesanecessaryincidentoftheir
regularbusiness.Forthisreason,insurancecompaniesarenotliabletotaxasmoneylendersorreal
estatebrokersformakingornegotiatingloanssecuredbyrealproperty.(Ruling,February28,1920
BIR135.2)"(TheInternalRevenueLaw,Annotated,2nded.,1929,byB.L.Meer,page143)

Thesamerulehasbeenappliedtobanks.

"For making investments on salary loans, banks will not be required to pay the money lenders tax
imposedbythissubsection,forthereasonthatmoneylendingisconsideredamereincidentofthe
bankingbusiness.[SeeRulingNo.43,(October8,1926)25Off.Gaz.1326)"(TheInternalRevenue
Law,Annotated,id.)

Theterm"moneylenders"waslaterchangedto"lendinginvestors"butthedefinitionofthetermremains
thesame.[Sec.1464(x),Rev.Adm.Code,asfinallyamendedbyCom.ActNo.215,andSec.1465(v)of
the same Code, as finally amended by Act No. 3963] The same law is embodied in the present National
Internal Revenue Code (Com. Act No. 466) without change, except in the amount of the tax. [See Secs.
182(A)(3)(dd)and194(u),NationalInternalRevenueCode.]

Itisawellsettledrulethatanadministrativeinterpretationofalawwhichhasbeenfollowedandappliedfor
a long time, and thereafter the law is reenacted without substantial change, such administrative
interpretation is deemed to have received legislative approval. In short, the administrative interpretation
becomespartofthelawasitispresumedtocarryoutthelegislativepurpose.5

The CTA held that the practice of lending money at interest is part of the insurance business. CA 466 already
taxes the insurance business. The CTA pointed out that the law recognizes and even regulates this practice of
lendingmoneybyinsurancecompanies.

TheCTAobservedthatCA466alsotreateddifferentlyinsurancecompaniesfromlendinginvestorsinregardto
fixedtaxes.UnderSection182(A)(3)(gg),insurancecompaniesweresubjecttothesamefixedtaxasbanksand
finance companies. The CTA reasoned that insurance companies were grouped with banks and finance
companiesbecausethelatterslendingactivitieswerealsointegraltotheirbusiness.Incontrast,lendinginvestors
were taxed at a different fixed tax under Section 182(A)(3)(dd) of CA 466. The CTA stated that "insurance
companiesxxxhadneverbeenrequiredbyrespondent[CIR]topaythefixedtaximposedonlendinginvestors
xxx."6

ThedispositiveportionoftheDecisionof5January1995oftheCourtofTaxAppeals("CTADecision")reads:

WHEREFORE, premises considered, petitioners Philippine American Accident Insurance Co., Philippine
American Assurance Co., and Philippine American General Insurance Co., Inc. are not taxable on their
lendingtransactionsindependentlyoftheirinsurancebusiness.Accordingly,respondentisherebyordered
torefundtopetitioner[s]thesumofP7,985.25,P7,047.80andP14,541.97 in CTA Cases No. 2514, 2515
and 2516, respectively representing the fixed and percentage taxes when (sic) paid by petitioners as
lendinginvestorfromAugust1971toSeptember1972.

Nopronouncementastocost.

SOORDERED.7

Dissatisfied,petitionerelevatedthemattertotheCourtofAppeals.8

TheRulingoftheCourtofAppeals

The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7 January
2000("CADecision"),theCourtofAppealsaffirmedtherulingoftheCTA,thus:

WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the decision, dated
January5,1995,oftheCourtofTaxAppealsinCTACasesNos.2514,2515and2516.

SOORDERED.9

PetitionerappealedtheCADecisiontothisCourt.

TheIssues

Petitionerraisesthesoleissue:
 WHETHERRESPONDENTINSURANCECOMPANIESARESUBJECTTOTHE3%PERCENTAGETAXAS
LENDINGINVESTORSUNDERSECTIONS182(A)(3)(DD)AND195A,RESPECTIVELYINRELATIONTO
SECTION194(U),ALLOFTHENIRC.10

TheRulingoftheCourt

Thepetitionlacksmerit.

OntheAdditionalIssueRaisedbyPetitioner

Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending investors, depending on their
location.11ThesolequestionbeforetheCTAwaswhetherrespondentsweresubjecttothepercentagetaxon
lendinginvestorsunderSection195A.PetitionerraisedforthefirsttimetheissueofthefixedtaxinthePetition
forReview12petitionerfiledbeforetheCourtofAppeals.

Ordinarily, a party cannot raise for the first time on appeal an issue not raised in the trial court.13 The Court of
AppealsshouldnothavetakencognizanceoftheissueonrespondentssupposedliabilityunderSection182(A)
(3)(dd).However,wecannotentirelyfaulttheCourtofAppealsorpetitioner.Evenifthepercentagetaxonlending
investorswasthesoleissuebeforeit,theCTAorderedpetitionertorefundtothePHILAMcompanies"thefixed
andpercentagetaxes[t]henpaidbypetitionersaslendinginvestor."14Althoughtheamountsforrefundconsisted
onlyofwhatrespondentspaidaspercentagetaxes,theCTADecisionalsoorderedtherefundtorespondentsof
thefixedtaxonlendinginvestors.RespondentsintheirpleadingsdenyanyliabilityunderSection182(A)(3)(dd),
onthesamegroundthattheyarenotlendinginvestors.

ThequestionofwhetherrespondentsshouldpaythefixedtaxunderSection182(A)(3)(dd)revolvesaroundthe
sameissueofwhetherrespondentsaretaxableaslendinginvestors.Insimilarcircumstances,theCourthasheld
that an appellate court may consider an unassigned error if it is closely related to an error that was properly
assigned.15 This rule properly applies to the present case. Thus, we shall consider and rule on the issue of
whetherrespondentsaresubjecttothefixedtaxunderSection182(A)(3)(dd).

WhetherInsuranceCompaniesare
TaxableasLendingInvestors

Invoking Sections 195A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that
insurancecompaniesaresubjecttotwofixedtaxesandtwopercentagetaxes.Petitionerallegesthat:

As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and another
P500.00underSection182(A)(3)(dd)and(gg)oftheTaxCode.Asanunderwriter,aninsurancecompany
issubjecttothe3%taxofthetotalpremiumscollectedandanother3%onthegrossreceiptsasalending
investorunderSections255and195A,respectivelyofthesameCode.xxx16

Petitioneralsocontendsthattherefundgrantedtorespondentsisinthenatureofataxexemption,andcannotbe
allowedunlessgrantedexplicitlyandcategorically.

Therulethattaxexemptionsshouldbeconstruedstrictlyagainstthetaxpayerpresupposesthatthetaxpayeris
clearly subject to the tax being levied against him. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally wellsettled rule that the imposition of a tax cannot be presumed.17
Wherethereisdoubt,taxlawsmustbeconstruedstrictlyagainstthegovernmentandinfavorofthetaxpayer.18
Thisisbecausetaxesareburdensonthetaxpayer,andshouldnotbeundulyimposedorpresumedbeyondwhat
thestatutesexpresslyandclearlyimport.19

Section182(A)(3)(dd)ofCA466alsoprovides:

Sec.182.Fixedtaxes.(A)Onbusinessxxx

xxx

(3)Otherfixedtaxes.Thefollowingfixedtaxesshallbecollectedasfollows,theamountstatedbeingfor
thewholeyear,whennototherwisespecified

xxx

(dd)Lendinginvestors

1.Incharteredcitiesandfirstclassmunicipalities,fivehundredpesos
 2.Insecondandthirdclassmunicipalities,twohundredandfiftypesos

3.Infourthandfifthclassmunicipalitiesandmunicipaldistricts,onehundredandtwentyfivepesos
Provided,Thatlendinginvestorswhodobusinessassuchinmorethanoneprovinceshallpayatax
offivehundredpesos.

Section195AofCA466provides:

Sec.195A.Percentagetaxondealersinsecuritieslendinginvestors.Dealersinsecuritiesandlending
investorsshallpayataxequivalenttothreepercentumontheirgrossincome.

NeitherSection182(A)(3)(dd)norSection195Amentionsinsurancecompanies.Section182(A)(3)(dd)provides
forthetaxationoflendinginvestorsindifferentlocalities.Section195Areferstodealersinsecuritiesandlending
investors.Theburdenisthusonpetitionertoshowthatinsurancecompaniesarelendinginvestorsforpurposes
oftaxation.

Inthiscase,petitionerdoesnotdisputethatrespondentsareintheinsurancebusiness.Petitionermerelyalleges
that the definition of lending investors under CA 466 is broad enough to encompass insurance companies.
Petitioner insists that because of Section 194(u), the two principal activities of the insurance business, namely,
underwritingandinvestment,areseparatelytaxable.20

Section194(u)ofCA466states:

(u)"Lendinginvestor"includesallpersonswhomakeapracticeoflendingmoneyforthemselvesorothers
atinterest.

xxx

As can be seen, Section 194(u) does not tax the practice of lending per se. It merely defines what lending
investorsare.Thequestioniswhetherthelendingactivitiesofinsurancecompaniesmakethemlendinginvestors
forpurposesoftaxation.

WeagreewiththeCTAandCourtofAppealsthatitdoesnot.Insurancecompaniescannotbeconsideredlending
investorsunderCA466,asamended.

DefinitionofLending
InvestorsunderCA466Does
NotIncludeInsurance
Companies.

ThedefinitioninSection194(u)ofCA466isnotbroadenoughtoincludethebusinessofinsurancecompanies.
TheInsuranceCodeof197821isveryclearonwhatconstitutesaninsurancecompany.Itprovidesthataninsurer
or insurance company "shall include all individuals, partnerships, associations or corporations xxx engaged as
principalsintheinsurancebusiness,exceptingmutualbenefitassociations."22Morespecifically,respondentsfall
underthecategoryofinsurancecorporationsasdefinedinSection185oftheInsuranceCode,thus:

SECTION 185. Corporations formed or organized to save any person or persons or other corporations
harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to
indemnify or to compensate any person or persons or other corporations for any such loss, damage, or
liability, or to guarantee the performance of or compliance with contractual obligations or the payment of
debtsofothersshallbeknownas"insurancecorporations."

Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending
investors cannot, for a consideration, hold anyone harmless from loss, damage or liability, nor provide
compensationorindemnityforloss.Theunderwritingofrisksistheprerogativeofinsurers,thegreatmajorityof
whichareincorporatedinsurancecompanies23likerespondents.

GrantingofMortgageand
otherLoansareInvestment
PracticesthatarePartofthe
InsuranceBusiness.

True, respondents granted mortgage and other kinds of loans. However, this was not done independently of
respondentsinsurancebusiness.Thegrantingofcertainloansisoneofseveralmeansofinvestmentallowedto
insurancecompanies.NolessthantheInsuranceCodemandatesandregulatesthispractice.24
Unlike the practice of lending investors, the lending activities of insurance companies are circumscribed and
strictly regulated by the State. Insurance companies cannot freely lend to "themselves or others" as lending
investorscan,25 nor can insurance companies grant simply any kind of loan. Even prior to 1978, the Insurance
Codeprescribedstrictrulesforthegrantingofloansbyinsurancecompanies.26Theseprovisionsonmortgage,
collateralandpolicyloanswerereiteratedintheInsuranceCodeof1978andarestillinforcetoday.

Petitionerconcedesthatrespondentsinvestmentpracticesareasmuchapartoftheinsurancebusinessasthe
taskofunderwriting.Nevertheless,petitionerarguesthatsuchinvestmentpracticesareseparatelytaxableunder
CA466.

The CTA and the Court of Appeals found that the investment of premiums and other funds received by
respondentsthroughthegrantingofmortgageandotherloanswasnecessarytorespondentsbusinessand
hence,shouldnotbetaxedseparately.

Insurance companies are required by law to possess and maintain substantial legal reserves to meet their
obligationstopolicyholders.27Thisobviouslycannotbeaccomplishedthroughthecollectionofpremiumsalone,
asthelegalreservesandcapitalandsurplusinsurancecompaniesareobligatedtomaintainrunintomillionsof
pesos. As such, the creation of "investment income" has long been held to be generally, if not necessarily,
essentialtothebusinessofinsurance.28

Thecreationofinvestmentincomeinthemannersanctionedbythelawsoninsuranceisthuspartofthebusiness
of insurance, and the fruits of these investments are essentially income from the insurance business. This is
particularly true if the invested assets are held either as reserved funds to provide for policy obligations or as
capitalandsurplustoprovideanextramarginofsafetywhichwillbeattractivetoinsurancebuyers.29

The Court has also held that when a company is taxed on its main business, it is no longer taxable further for
engaging in an activity or work which is merely a part of, incidental to and is necessary to its main business.30
Respondents already paid percentage and fixed taxes on their insurance business. To require them to pay
percentageandfixedtaxesagainforanactivitywhichisnecessarilyapartofthesamebusiness,thelawmust
expresslyrequiresuchadditionalpaymentoftax.Thereis,however,noprovisionoflawrequiringsuchadditional
paymentoftax.

Sections195Aand182(A)(3)(dd)ofCA466donotrequireinsurancecompaniestopaydoublepercentageand
fixed taxes. They merely tax lending investors, not lending activities. Respondents were not transformed into
lending investors by the mere fact that they granted loans, as these investments were part of, incidental and
necessarytotheirinsurancebusiness.

DifferentTaxTreatmentof
InsuranceCompaniesand
LendingInvestors.

Section182(A)(3)ofCA466accordeddifferenttaxtreatmentstolendinginvestorsandinsurancecompanies.The
relevantportionsofSection182state:

Sec.182.Fixedtaxes.(A)Onbusinessxxx

(3)Otherfixedtaxes.Thefollowingfixedtaxesshallbecollectedasfollows,theamountstatedbeingfor
thewholeyear,whennototherwisespecified

xxx

(dd)Lendinginvestors

1.Incharteredcitiesandfirstclassmunicipalities,fivehundredpesos

2.Insecondandthirdclassmunicipalities,twohundredandfiftypesos

3.Infourthandfifthclassmunicipalitiesandmunicipaldistricts,onehundredandtwentyfivepesos
Provided,Thatlendinginvestorswhodobusinessassuchinmorethanoneprovinceshallpayatax
offivehundredpesos.

xxx

(gg)Banks,insurancecompanies,financeandinvestmentcompaniesdoingbusinessinthePhilippinesand
franchisegrantees,fivehundredpesos.

xxx(Emphasissupplied.)
The separate provisions on lending investors and insurance companies demonstrate an intention to treat these
businessesdifferently.IfCongressintendedinsurancecompaniestobetaxedaslendinginvestors,therewould
be no need for Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance
companieswereincludedwithbanks,financeandinvestmentcompaniesalsosupportstheCTAsconclusionthat
insurance companies had more in common with the latter enterprises than with lending investors. As the CTA
pointedout,banksalsoregularlylendmoneyatinterest,butarenottaxableaslendinginvestors.

WefindnomeritinpetitionerscontentionthatCongressintendedtosubjectrespondentstotwopercentagetaxes
andtwofixedtaxes.Petitionersargumentgoesagainstthedoctrineofstrictinterpretationoftaximpositions.

Petitionersargumentislikewisenotinaccordwithexistingjurisprudence.InCommissionerofInternalRevenue
v.MichelJ.LhuillierPawnshop,Inc.,31theCourtruledthatthedifferenttaxtreatmentaccordedtopawnshops
andlendinginvestorsintheNIRCof1977andtheNIRCof1986showed"theintentofCongresstodealwithboth
subjectsdifferently."Thesamereasoningappliessquarelytothepresentcase.

Eventhecurrenttaxlawdoesnottreatinsurancecompaniesaslendinginvestors.UnderSection108(A)32ofthe
NIRCof1997,lendinginvestorsandnonlifeinsurancecompanies,exceptfortheircropinsurances,aresubject
to valueadded tax ("VAT"). Life insurance companies are exempt from VAT, but are subject to percentage tax
underSection123oftheNIRCof1997.

Indeed,thefactthatSections195Aand182(A)(3)(dd)ofCA466failedtomentioninsurancecompaniesalready
impliesthelattersexclusionfromthecoverageoftheseprovisions.Whenastatuteenumeratesthethingsupon
whichitistooperate,everythingelsebyimplicationmustbeexcludedfromitsoperationandeffect.33

DefinitionofLending
InvestorsinCA466isNot
New.

Petitionerdoesnotdisputethatitissuedarulingin1920totheeffectthatthelendingofmoneyatinterestwasa
necessaryincidentoftheinsurancebusiness,andthatinsurancecompanieswerethusnotsubjecttothetaxon
moneylenders.Petitionerarguesonlythatthe1920rulingdoesnotapplytotheinstantcasebecauseRA6110
introducedthedefinitionoflendinginvestorstoCA466onlyin1969.

Thesubjectdefinitionwasactuallyintroducedmuchearlier,atatimewhenlendinginvestorswerestillreferredto
asmoneylenders.Sections45and46oftheInternalRevenueLawof191434("1914TaxCode")state:

SECTION 45. Amount of Tax on Business. Fixed taxes on business shall be collected as follows, the
amountstatedbeingforthewholeyear,whennototherwisespecified:

xxx

(x)Moneylenders,eightypesos

xxx

SECTION 46. Words and Phrases Defined. In applying the provisions of the preceding section words
andphrasesshallbetakeninthesenseandextensionindicatedbelow:

xxx

"Money lender" includes all persons who make a practice of lending money for themselves or
othersatinterest.(Emphasissupplied)

Ascanbeseen,thedefinitionsof"moneylender"underthe1914TaxCodeand"lendinginvestor"underCA466
are identical. The term "money lender" was merely changed to "lending investor" when Act No. 3963 amended
the Revised Administrative Code in 1932.35 This same definition of lending investor has since appeared in
Section194(u)ofCA466andlatertaxlaws.

Notethatinsurancecompanieswerenotincludedamongthebusinessessubjecttoanannualfixedtaxunderthe
1914TaxCode.36ThatCongresslatersawtheneedtointroduceSection182(A)(3)(gg)inCA466bolstersour
viewthattherewasnolegislativeintenttotaxinsurancecompaniesaslendinginvestors.Ifinsurancecompanies
were already taxed as lending investors, there would have been no need for a separate provision specifically
requiringinsurancecompaniestopayfixedtaxes.

TheCourtAccordsGreat
WeighttotheFactualFindings
oftheCTA.
Dedicated exclusively to the study and consideration of tax problems, the CTA has necessarily developed an
expertiseinthesubjectoftaxationthatthisCourthasrecognizedtimeandagain.Forthisreason,thefindingsof
factoftheCTA,particularlywhenaffirmedbytheCourtofAppeals,aregenerallyconclusiveonthisCourtabsent
graveabuseofdiscretionorpalpableerror,37whicharenotpresentinthiscase.

WHEREFORE,weDENYtheinstantpetitionandAFFIRMtheDecisionof7January2000oftheCourtofAppeals
inCAG.R.SPNo.36816.

SOORDERED.

Davide,Jr.,C.J.,(Chairman),Quisumbing,YnaresSantiago,andAzcuna,JJ.,concur.

Footnotes
1UnderRule45oftheRulesofCivilProcedure.

2Rollo,pp.2030.PennedbyAssociateJusticeRamonMabutas,Jr.withAssociateJusticesArtemioG.
TuqueroandMercedesGozoDadoleconcurring.

3Ibid.,pp.3243.PennedbyAssociateJudgeManuelK.GrubawithPresidingJudgeErnestoD.Acosta
andAssociateJudgeRamonO.DeVeyraconcurring.
4Section195AwasaddedtoCA466byRA6110.Itstates:Sec.195A.Percentagetaxondealersin
securitieslendinginvestors.Dealersinsecuritiesandlendinginvestorsshallpayataxequivalenttothree
percentumontheirgrossincome.
5Rollo,pp.3435.

6Ibid.,p.39.

7Ibid.,p.42.

8NotethatunderRepublicActNo.9282,decisionsoftheCTAarenowappealabletotheSupremeCourt
viaaverifiedpetitionforreviewoncertiorari.

9Rollo,p.30.

10Ibid.,p.10.

11Sec.182.Fixedtaxes.(A)Onbusinessxxx

xxx

(3)Otherfixedtaxes.Thefollowingfixedtaxesshallbecollectedasfollows,theamountstated
beingforthewholeyear,whennototherwisespecified

xxx

(dd)Lendinginvestors

1.Incharteredcitiesandfirstclassmunicipalities,fivehundredpesos

2.Insecondandthirdclassmunicipalities,twohundredandfiftypesos

3.Infourthandfifthclassmunicipalitiesandmunicipaldistricts,onehundredandtwentyfivepesos
Provided,Thatlendinginvestorswhodobusinessassuchinmorethanoneprovinceshallpayatax
offivehundredpesos.
12CARollo,pp.718.

13Limv.QueenslandTokyoCommodities,Inc.,424Phil.35(2002).

14Rollo,p.42.
15Garridov.CourtofAppeals,G.R.No.101262,14September1994,236SCRA450.SeealsoF.F.
MaacopConstructionCo.,Inc.v.CourtofAppeals,G.R.No.122196,15January1997,266SCRA235.
16Rollo,p.112.

17CIRv.CA,338Phil.322(1997).

18LincolnPhilippineLifeInsuranceCo.,Inc.v.CA,354Phil.896(1998)CIRv.CA,supra.

19Ibid.

20Rollo,pp.1213.

21PresidentialDecreeNo.1460(1978),asamended.

22Section184,ibid.

23MariaClaraL.Campos,Insurance7(UniversityofthePhilippinesLawCenter1983)43AmJur2d,
Insurance,188.
24SeeSections198to203ofPresidentialDecreeNo.1460.Loansarenoteventhechiefmeansof
investment.AccordingtotheInsuranceCommission,loansaccountedforonly16.61%oftheinvestments
madebytheinsuranceindustryin2002.Comparethiswiththeindustrysinvestmentinbondsand
governmentsecurities,whichamountedto45.75%(http://www.ic.gov.ph/main.asp?pages=statper2002).
25Infact,pursuanttoInsuranceCircularLetterNo.06460(1960),reiteratedintheInsuranceCircular
Letterof20May1985,noinsurancecompanycouldgrantaloantoanyofitsofficersordirectorswithout
thepriorapprovaloftheInsuranceCommissioner.
26PresidentialDecreeNo.612(1974)provided:

Sec.198.Noinsurancecompanyshallloananyofitsmoneyordepositstoanyperson,corporation
orassociation,exceptuponfirstmortgageordeedsoftrustofunencumbered,improvedor
unimprovedrealestate,includingcondominiums,incitiesandcentersofpopulationofmunicipalities
inthePhilippineswhentheamountofsuchloanisnotinexcessofseventypercentumofthemarket
valueofsuchrealestateoruponthesecurityoffirstmortgagesordeedsoftrustofactually
cultivated,improvedandunencumberedagriculturallandsinthePhilippineswhentheamountof
suchloanisnotinexcessoffortypercentumofthemarketvalueofsuchlandoruponthepurchase
moneymortgagesorlikesecuritiesreceivedbyituponthesaleorexchangeofrealproperty
acquiredpursuanttosectionstwohundredandtwohundredtwooruponbondsorotherevidences
ofdebtoftheGovernmentofthePhilippinesoritspoliticalsubdivisionsauthorizedbylawtoissue
bonds,oruponbondsorotherevidencesofdebtofgovernmentownedorcontrolledcorporations
andinstrumentalitiesincludingtheCentralBankoruponobligationsissuedorguaranteedbythe
InternationalBankforReconstructionandDevelopmentoruponstocks,bondsorotherevidencesof
debtasarespecifiedinsectiontwohundred.

Alifeinsurancecompany,however,maylendtoanyofitspolicyholdersuponthesecurityofthe
valueofitspolicysuchsumasmaybedeterminedpursuanttotheprovisionsofthepolicy.

Loansgranteduponthesecurityofrealestateforaperiodlongerthanfiveyearsshallbeamortized
inmonthly,quarterly,semiannualorannualinstallmentsProvided,Thatnosuchloansshallhavea
maturityinexcessoftwentyyears.

Thephrase"improvedrealestate"usedaboveisherebydefinedtomeanlandwithpermanent
buildingorbuildingserectedorbeingerectedthereon.Exceptasotherwiseapprovedbythe
Commissioner,incasethebuildingorbuildingsonlanddonotbelongtotheownerofthelatter,no
loanshallbegrantedonthesecurityoftherealestateinquestionunlessboththeownerofthe
buildingorbuildingsandtheownerofthelandsignthedeedofmortgage,andunlesstheownerof
thelandistheGovernmentofthePhilippinesoroneofitspoliticalsubdivisions,inwhicheventthe
ownerisnotrequiredtosignthedeedofmortgage.

Sec.199.Noloanbyanyinsurancecompanyonthesecurityofrealestateshallbemadeunlessthe
titletosuchrealestateshallhavefirstbeenregisteredinaccordancewiththeexistingLand
RegistrationAct,orshallbeatitulorealdulyregistered,orhavebeenpreviouslyregisteredunderthe
provisionsoftheexistingMortgageLaw.
 TheseprovisionswerecarriedoverintheInsuranceCodeof1978.
27SpousesTibayv.CA,326Phil.931(1996).SeealsoSections194,210to214ofPresidentialDecree
No.1460.
28Bowersv.LawyersMortg.Co.,285U.S.182(1932).

29JusticeJoseC.VitugandJusticeErnestoD.Acosta,TaxLawandJurisprudence,2nded.,256,citing
CommissionerofInternalRevenuev.CourtofTaxAppeals,CAG.R.SPNo.39511to39513,30
September1996.ThisCAdecisionwasneverappealedtothisCourt.

30StandardVacuumOilCo.v.Antigua,etc.,etal.,96Phil.909(1955).

31G.R.No.150947,15July2003,406SCRA178.

32TherelevantportionofSec.108(A)states:

(A)RateandBaseofTax.Thereshallbelevied,assessedandcollected,avalueaddedtax
equivalenttotenpercent(10%)ofgrossreceiptsderivedfromthesaleorexchangeofservices,
includingtheuseorleaseofproperties.

Thephrase"saleorexchangeofservices"meanstheperformanceofallkindsofservicesinthe
Philippinesforothersforafee,remunerationorconsideration,includingthoseperformedor
renderedbyxxxlendinginvestorsxxxservicesofbanks,nonbankfinancialintermediariesand
financecompaniesandnonlifeinsurancecompanies(excepttheircropinsurances),including
surety,fidelity,indemnityandbondingcompaniesxxx.(Emphasissupplied)
33Applyingthemaximexpressiouniusestexclusioalterius.SeeCommissionerofInternalRevenuev.
MichelJ.LhuillierPawnshop,Inc.,supranote31.
34ActNo.2339(1914).

35ActNo.3963(1932)provides:

Sec.2Paragraph(v)ofsectionfourteenhundredandsixtyfiveoftheRevisedAdministrativeCodeis
herebyamendedsoastoreadasfollows:

"(v)Lendinginvestorincludesallpersonswhomakeapracticeoflendingmoneyforthemselvesor
othersatinterest."xxx
36ThereceiptsofinsurancecompanieswereinsteadsubjecttointernalrevenuetaxesunderSec.21(e)of
the1914TaxCode.
37Supranote17.

TheLawphilProjectArellanoLawFoundation